AI PCs Have Arrived: Shipments Rising, Competition Heating Up

This article was originally published on Forbes on Updated Sep 13, 2024, 06:42am EDTForbesForbes on Updated Sep 13, 2024, 06:42am EDT

Chipmakers Qualcomm, Intel and AMD are working to bring AI-capable PCs to the “mainstream”, delivering powerful neural processing units to PCs for on-computer AI operations. AI PCs are not only a consumer market, rather will also be driven forward by enterprises and developers seeking to upgrade their employee PCs. This being one of the biggest upgrade cycles in PC history, competition has heightened as Q3 comes to a close.

Intel believes the AI PC “promises to be a huge improvement for everyday PC usages,” as it “represents a fundamental shift in how our computers operate.” Lenovo executives believe that “AI enables a personalized user experience that, once adopted, will lead to significant productivity gains and foster greater innovation and creativity.” AMD’s executives have explained that they “see AI as the biggest inflection point in PC since the Internet with the ability to deliver unprecedented productivity and usability gains.” Qualcomm’s CEO has said that he believes the AI PC “is as significant as Windows 95. It is changing the experience, delivering groundbreaking AI capabilities, fundamentally changing how we interact with our PCs.”

AI PCs are expected to usher in a new wave of AI underpinned by increased productivity. AI’s trajectory will increase when more people can access AI-powered applications, which in turn, will help AI developers build larger ecosystems. Existing PCs are not yet powerful or efficient enough to run AI at the edge, yet the PCs currently being released with NPUs (neural processing units) will exceed 40 trillion operations per seconds (TOPS) and this will usher forth the performance upgrades needed to make on-device AI a reality for millions of consumers and enterprises.

AI PCs Drive Growth in Q2

AI PCs gained momentum with AI PC shipments doubling sequentially despite low-single digit growth in the broader PC market in Q2. Further growth is expected in the second half of the year as Intel and AMD prepare competing chips to Qualcomm’s Snapdragon X lineup.

Current AI PC projections:

• For Q2, PC market growth was estimated in the low-3% range:
• Canalys is placing growth at 3.4% YoY
• Counterpoint Research seeing 3.1% YoY growth
• IDC reporting is reporting 3% YoY growth with its preliminary numbers.
• Total shipment figures varied slightly for each group ranging from 62.5 million to 64.9 million, representing QoQ growth of 9.1% for the broader PC market.

AI PCs were a predominant driver of growth sequentially, rising from approximately 7% share in Q1 to 14% share of shipments in Q2. On a unit basis, AI PCs shipments jumped 120% QoQ, from 4.0 million in Q1 to 8.8 million in Q2. For the first half of the year, that puts shipments at around 12.8 million units.

Full year forecast from Canalys projects shipments of 44 million AI PCs in 2024, implying that Q3 and Q4 will combine for 32 million units, or averaging nearly 50% QoQ growth in both quarters. IDC expects AI PC shipments to run closer to 50 million, with Gartner estimating 54.5 million earlier this year, though that would require ~300% growth from 1H to 2H.

Regardless of the exact number, the setup looks strong for H2 growth, although keep in mind, many competitors are competing for market share.

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2024 is the Spark for 2025’s Boom

While 2024 is off to a strong start so far for AI PC shipments with Q2 showing triple digit sequential growth, the true growth story for AI PCs will be in 2025. This year is the initial spark for AI PCs to boom in 2025, when they are expected to quickly take significant market share.

AMD CEO Lisa Su cautioned that some investors may have mistakenly expected 2024 to be the big growth year, but that she believes that will instead be 2025. Su said at Goldman Sachs Communacopia and Technology Conference that she believes “we are at the start of a multiyear AI PC cycle. So again, you guys are always trying to go a little bit too fast. So, we never said AI PCs was a big 2024 phenomena. AI PC is a start in 2024. But more importantly, it's the most significant innovation that's come to the PC market in definitely the last 10-plus years.”

Should the broader PC market register growth in the mid-to-high single digit range to ~260 million shipments this year, AI PCs would take 17% share at 44 million units.

For 2025, shipments are forecast to rise more than 134% YoY to 103 million units, at the midpoint. Assuming high single digit growth in total shipments in 2025 to 280 million PCs, AI PCs would take close to 40% share at the midpoint of 106 million shipments forecasted.

Source: Gartner/IDC/Canalys

Longer-term, growth is expected to remain robust. Intel’s executives expect AI PCs to account for more than 50% of the PC market in 2026, and as much as 80% market share by 2028. Canalys sees AI PC shipments top 200 million by 2028, taking up to 70% market share.

Commercial to Drive AI PC Growth

AI PC’s rapid adoption curve will be driven primarily by the commercial market, with AI PCs expected to be a catalyzing force ahead of the upcoming Windows refresh at the end next year.

There is indication the early majority will adopt AI PCs in 2025, and the late majority in 2026, with industry projections matching this narrative. This leaves time for consumers to participate, which so far has been a challenge for AI.

I covered this in the past, stating: “AI-capable PCs are expected to be an explosive trend through 2025 and beyond. The trajectory of AI will increase when more people can access AI-powered applications, which in turn, will help AI developers build a bigger ecosystem. Currently, there is a major bottleneck right now for AI applications to where client devices are not powerful enough or energy efficient enough to leverage AI capabilities at the edge.” For a deeper dive on AI PCs and industry commentary on the growth potential, refer to AI PC Stocks: Emerging 2024 And 2025 Story (io-fund.com).

AMD’s Su believes that while the industry is only in the “beginning” of the AI PC cycle, “next year, as we think about commercial PCs and commercial refresh cycle, we actually see AI PC as a driver of that commercial refresh cycle.” This is a view shared by IDC, which “believes the commercial market has the biggest short-term upside for AI in the PC industry,” with the consumer side “yet to be told in full.” This is a view shared by Lenovo’s executives, who believe the end of support for Windows 10 in 2025 “will necessitate a migration to Windows 11 for enterprises and commercial users, further driving demand for new PCs.”

Commercial market share of AI PCs is projected to reach almost 60% by 2027, per Canalys. This implies end-market shipments of nearly 100 million, with the remaining 40% share in consumer. Additionally, Gartner forecasts that 100% of commercial (enterprise) PC purchases will be AI PCs by the end of 2026, driven by the productivity gains realized by on-device AI, and as enterprise applications begin to take advantage of AI features. Lenovo also expects that “enterprises may increasingly require AI-enabled PCs to remain competitive.”

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Competition is Intensifying

Competition in AI PCs is quickly intensifying, with Qualcomm moving downstream to the $700 and below market with a new Snapdragon chip. The x-86 based competitors, Intel and AMD, see growth opportunities ahead, with Intel forecasting a surge in CPU shipments as it comes off the launch of its Core Ultra 200V (Lunar Lake) chips.

Nvidia and AMD reportedly are lining up powerful Arm-based CPUs to take on Qualcomm after its Arm exclusivity deal expires at the end of 2024. Apple is also rumored to be planning an M4-powered Mac refresh either by the end of this year or early 2025.

The chipmakers are competing on NPU performance, alongside efficiency:

Qualcomm’s Snapdragon X NPU offers 45 TOPS of AI performance, while CEO Cristiano Amon “claiming a performance-per-watt 2.6 times better than AMD and 5.4 better than Intel's Core Ultra 7 chips.”

Intel’s Lunar Lake chip offers up to 48 TOPS on the NPU, and Intel is claiming “1.4x AI performance over the Snapdragon X Elite running the Stable Diffusion tool in a GIMP plugin; faster overall core performance versus Ryzen and Qualcomm competition; and a 1.5x improvement over its previous generation in the performance of the integrated GPU.”

AMD’s Ryzen AI 300 series chips (Strix Point and Strix Halo) offer up to 50 TOPS performance from the NPU, the highest on the market so far.

Apple’s M4 chip offers up to 38 TOPS performance on the NPU, with the chip originally deploying on the iPad lineup with the Mac refresh rumored for this year or next.

Nvidia does not have an NPU competitor yet, as it believes its GeForce RTX GPUs offer significantly higher TOPS and more AI performance, meeting the bill for AI PCs. However, Nvidia and MediaTek are reportedly working on an Arm-based AI PC chip for a 2025 launch following the expiration of Qualcomm’s exclusivity deal.

Intel’s Shipments Ahead of Expectations, AMD Execs See Share Gains

Though we are on the precipice of going through a major shift to where Arm architecture will compete more directly with x86 architecture for PCs, Arm lost share in both desktops and notebooks in Q2, according to data from Mercury Research.

In notebooks, Arm lost 144 bp market share QoQ to 11.4% share in Q2. AMD’s notebook share rose 121 bp QoQ to 18.0%, while Intel gained 23 bp QoQ to 70.6% share.

In desktops, Arm lost 31 bp QoQ to 5.9% share, AMD also lost 83 bp QoQ to 21.6% share, while Intel’s share rose 113 bp QoQ to 72.5%.

This was reflected in Intel’s Q2 report, where management noted that its Core Ultra (AI PC chip) shipments exceeded expectations in that quarters and “more than doubled sequentially.” Core Ultra shipments have surpassed 15 million since December 2023, with Intel believing that it remains firmly on track to surpass 40 million AI PCs by the end of 2024 and more than 100 million cumulatively by the end of 2025.

Qualcomm has also said that its initial launch of Copilot+ PCs, powered by its Snapdragon lineup, is exceeding internal expectations, but management has not shed light on AI PC shipments or revenue. Analysts questioned management over the impact of AI PCs on fiscal Q4’s guide, with management stating that “it's too early to kind of have either a bullish assumption or a specific assumption on PC,” and it is more “about kind of the longer-term growth opportunity, and being very specific on sell-through in the short term is not really something that we have insight into.” Management plans to provide more information on the revenue ramp during its upcoming Investor Day conference.

Qualcomm also mentioned that “20 Copilot+ PCs from Microsoft, Dell, HP, Lenovo, Acer, ASUS and Samsung are now available across 20 countries and 47 retailers.” This is a fraction of what Intel is launching, with Intel saying that “Microsoft has qualified Lunar Lake to power more than 80 new Copilot+ PCs across more than 20 OEMs.”

Similar to its competitors, AMD has been quite bullish regarding the impact of AI PCs on the upcoming refresh cycle, as it eyes a growth opportunity in commercial PCs.

AMD’s Ryzen AI 300 series (featuring the industry’s fastest NPU with 50 TOPS) launched at the end of July to “to strong reviews,” with “more than 100 Ryzen AI 300 series premium, gaming, and commercial platforms on track to launch from Acer, ASUS, HP, Lenovo, and others over the coming quarters.” Management noted that “customer excitement for our new Ryzen processors is very strong, and we are well positioned for ongoing revenue share gains based on the strength of our leadership portfolio and design win momentum.”

This builds on CFO Jean Hu’s prior comments that AMD was “gaining share” in PCs, as CEO Lisa Su sees “clear opportunities to gain additional commercial PC share based on the performance and efficiency advantages of our Ryzen Pro portfolio and an expanded set of AMD-powered commercial PCs from our OEM partners.” AMD’s executives hold the view that the company is “underrepresented” in PCs, “but particularly in the commercial PC side.” Management believes they can do “above-typical seasonality” in the second-half of 2024, based on the timing and strength of its product launches.

Intel’s Margin Troubles and AMD’s Growth

While Qualcomm is bringing a formidable Arm-based competitor to the industry, management has provided little clues to the revenue or margin impacts from AI PCs. Intel is looking to make large strides by prioritizing shipments at the expense of margins (and shareholders), while AMD is posting the strongest YoY growth rates, though comps were still weak in Q2.

Qualcomm’s IoT revenue, which houses its PC segment, has posted YoY revenue declines since fiscal Q2 2023, or six consecutive quarters. IoT revenue in Q3 declined (8%) YoY to $1.36 billion, as the pace of declines slowed, from (32%) YoY in Q1 and (11%) YoY in Q2. Management has not stated the impact of PCs on IoT revenue growth, or its contribution.

Intel reported 9% YoY revenue growth in Client Computing in Q2 to $7.41 billion, decelerating from Q1’s 31% YoY growth. On a dollar basis, growth has declined for two consecutive quarters, falling from $8.84 billion in Q4 to $7.53 billion in Q1 and now $7.41 billion.

Source: Company IR

Notebook revenue declined sequentially for Intel, despite shipping AI PC chips ahead of expectations. Desktop revenue gained sequentially, but not enough to offset the softness in notebook: desktop revenue rose just 2.7% QoQ to $2.53 billion, while notebook slipped (4.3%) QoQ to $4.48 billion.

While Intel is reporting sequential weakness, AMD is seeing growth recover and growth rates remain strong. AMD’s Client segment has registered YoY growth of 42%, 62%, 85%, and 49% respectively, though against weak comps. Revenue in Q2 was just under $1.5 billion, up 9.1% QoQ and reaching the highest level in eight quarters. However, Client revenue is still one-third below its peak levels since in 2022, suffering from the sharp inventory correction that hit the industry.

Source: Company IR

As this growth story unfolds, operating margins will be critical to track for both Intel and AMD. Intel’s margins and profitability took a hit from its decision to prioritize AI PC shipments, and management seems keen on keeping that a priority moving forward, suggesting margins may have not stabilized. For AMD, the Client segment has historically been a significant driver of operating income. For example, in Q2 2022, when revenues were above $2.1 billion, Client’s operating margin was 31%, compared to 6% now – essentially, there’s much more ground to cover on the profitability side versus the growth side.

Conclusion

AI PCs bring x86 and Arm to the battlegrounds, with Qualcomm’s Snapdragon lineup making an attempt at the first major inroad on x86 Windows-based CPUs. Intel and AMD see strong growth ahead for their x86 competitors, though Apple is expected to bring a major upgrade with M4 chips later this year. This is ahead of possible new Arm-based CPUs from Nvidia and AMD next year.

Shipments of AI PCs have only just begun accelerating, with Q2 showing triple-digit sequential growth but penetration rates remain low. AI PC adoption is projected to skyrocket towards 70% share of total PC shipments by 2027, with growth arising predominantly in commercial markets first.

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